Business Innovation: Follow the Jugaad Principle

Definition of jugaad: [noun] A Hindi word meaning an innovative fix; an improvised solution born from ingenuity and resourcefulness.

In emerging markets, new threats and opportunities can emerge from out of the blue. This forces jugaad innovators to not only think but also act flexibly.

By demonstrating agility, jugaad innovators can deal with unanticipated challenges faster and seize unexpected opportunities -- such as changing customer needs -- more swiftly than their competitors.

Zhang Ruimin is one such jugaad innovator who thinks and acts quickly.

An Agile Approach to Manufacturing
Zhang is the CEO of Haier, a Chinese consumer goods company that is making appliance manufacturers like GE and Whirlpool nervous.

Under Zhang’s leadership, Haier has, in the space of a decade, made huge inroads into North American and European markets by selling quality appliances at lower prices than those of Western suppliers like Whirlpool and GE.

Armed with its ‘‘value for money’’ strategy, Haier is disrupting the consumer goods market not only in mainstream segments like air-conditioners and washing machines but also in niche segments like wine coolers.

For instance, Haier launched a $704 wine cooler that is less than half the cost of industry leader La Sommeliere’s product. Within two years of this launch, Haier has grown the market by a whopping 10,000 percent and now controls 60 percent of the U.S. market by value.

What makes Haier so innovative is not just its cool products, but also its flexible organizational structure. Zhang believes that in the Internet era, appliance makers like Haier need to shift from mass production to
mass customization -- and start thinking and acting nimbly, as Facebook and Google do.

As Zhang explains: ‘‘The focus on promoting your cost or price advantage has shifted to a focus on service differentiation, mostly centering on customer experience.’’

Emulating a Start-Up’s Flexibility
To sense and respond to his retail customers’ needs faster than rivals can, Zhang came up with a jugaad innovation: he radically redesigned Haier’s organization, which currently employs over fifty thousand people worldwide.

Specifically, he replaced Haier’s organizational pyramid with a loosely coupled network of more than four thousand self-managed, cross-functional units (including R&D, supply chain, sales, and marketing) that interact directly with customers and autonomously make decisions.

Each unit operates as an independent profit center and is evaluated as such. Zhang refers to this organizational innovation -- which empowers autonomous units of frontline workers to sense and respond to consumer demand -- as ‘‘making a big company small’’ -- that is, allowing a big company like Haier to maintain the unique flexibility of a small startup.10

To make this bottom-up, customer-centric organizational structure work, Zhang shifted the role of managers from being commanders and supervisors into being supporters and providers who ensure that the independent units have the resources they need to meet customer demand as promptly as possible. He doesn’t want managers to be in charge, as they aren’t directly in touch with customers.

Haier’s organizational agility enables it to react swiftly to rapidly changing -- or unexpected -- customer needs, and to innovate faster, better, and cheaper than its rivals.

For instance, in China, any call placed to Haier’s national customer service center is answered within three rings and a technician is dispatched to your house within three hours -- even on Sundays.

Jugaad innovators -- such as Haier’s employees -- are highly adaptable. They are capable of thinking on their feet and acting with great agility. Being nimble-minded and nimble-footed serves them well in the context of emerging markets, which are characterized by extreme unpredictability.

Western leaders confronted with increasing volatility and uncertainty in their own business environment must also learn to think and act flexibly.